Improving efficiency, effectiveness of drug recalls
Evolving technology and service capabilities are the news in reverse logistics for the pharma industry these days. Service providers are touting a greater degree of collaboration with manufacturers, and with retailers, distributors and others along the pharma supply chain. At the same time, it appears to have been a couple of banner years for the recalls business, with large recalls of both ethical and OTC products occurring. (Reverse logistics for pharma is a combination of product returns of expiring or overstocked product, and recalls initiated by manufacturers themselves or by FDA for product defects.)
“There’s an opportunity to take advantage of today’s technology combined with the willingness of business partners to collaborate,” says Jeff Pepperworth, president, supply chain and pharmaceutical services, Inmar (Winston-Salem, NC). “Collaboration of industry partners will drive best practices to ensure consumer safety, as well as positively impact the cost and efficiencies for the industry.”
There appears to be an increased sense of urgency on the part of pharma companies, observers say, as they gain a better understanding about the true impact a recall of any size can have from both a liability and brand perspective. Manufacturers reported an average of 2% of their sales volume is returned annually for credit, while Healthcare Distribution Management Association (HDMA; Arlington, VA) member distributors reported an average of 0.03% of total sales dollars were recalled or withdrawn in 2010, according to the 2011—2012 HDMA Factbook.
Throw in patient-safety concern when a controlled substance is recalled—in an industry where 100% recovery is rarely achieved even for highly unsafe products—and you have the makings of a potentially painful hit to the bottom line if recalls and returns are not handled adequately. “Effectively managing reverse logistics can have a profound impact on a company’s bottom line,” says Mike Rozembajgier, VP at Stericycle Returns Management Services (Indianapolis, IN). “Even some of the best companies within the pharmaceutical industry at supply chain functions turn to reverse logistics providers for help in managing such a process.”
Although there are no new regulations affecting the handling of pharmaceutical product recalls, industry members say, mechanisms like the recently passed FDA Safety and Innovation Act (FDASIA) continue to exert strong regulatory influence over the US drug and device industries. “A number of high-profile drug safety issues in the past two years placed additional focus on FDA and the way in which it conducts inspections and investigations,” says Donald Rendulic, director, marketing and communications, Genco Pharmaceutical Services (Pittsburgh, PA). “While no one wants an FDA-mandated recall, with the increased agency finding, as well as the increased scrutiny, it is not unreasonable to expect additional product withdrawals or recall events, and to have contingencies in place.”
Serialization and e-pedigree—the push to give pharmaceutical products ID numbers that can be tracked throughout the supply chain—almost made it into FDASIA, but was removed when the bill was reconciled between House and Senate versions. But some in the reverse logistics community expect a federal e-pedigree law to appear soon, and even if it doesn’t, the industry will be moving toward compliance with similar regulations on the books in California. The California rules are scheduled to go into effect beginning in 2015.
“While a provision calling for the creation of a national ‘track-and-trace’ system was dropped from the final FDA reauthorization bill, future legislation is imminent,” Rozembajgier says. “This anticipation is leading companies to see outsourcing recalls as a more attractive option to managing the process in-house.”
All of which makes it critical for pharma companies to anticipate and prepare for recalls and have a plan in place before it happens. “Following a recall plan helps lay the foundation, so the company can show that it managed a recall with the safety and reputation of its product in mind and with the patients’ safety as a priority,” Genco’s Rendulic says. “Mock recalls can be the best way to get prepared and understand internal and FDA requirements.”
Value in data
Reverse logistics tends to be a messy affair, with unpredictable lots of prescription and OTC products from countless retail and institutional pharmacies, chain stores, and hospitals sent back through various intermediary partners in the reverse supply chain. These third-party agents then arrange for product destruction and cash/credit reimbursements for unsalable drugs to be paid by manufacturers. This provides vendors the flexibility to put their resources towards other parts of the business, such as manufacturing or customer service.
“This is particularly important during the recalls process, as it allows businesses to look forward instead of backward,” Stericycle’s Rozembajgier points out. “3PLs (third-party logistic providers) can mitigate potential risks and liabilities by providing the data and records necessary to comply with regulatory agencies.”
Another major benefit of utilizing 3PLs is their ability to collect critical data points from products received. This allows pharma companies to better understand where their returns are coming from, the condition in which they arrive, and whether or not return instructions were followed. “With all of this data, companies can understand how their customers handle returns and recalls,” Rozembajgier says. “This insight can be helpful in creating a stronger business relationship, allowing the manufacturer to adapt its procedures to better suit customers and even lead to more effective management of reverse logistics.”
Industry members say efforts are being made to improve processes and efficiencies for returned unsalable healthcare products, such as leveraging technology to streamline data flow between trading partners and cutting down time between when a product is received, and when the manufacturer credits the retail pharmacy for it. 3PLs have access to every piece of information about a returned package, so they can help companies understand where they face the greatest risks, from ineffective return policies to over-reimbursement.
Maintaining an acceptable turnaround time from receipt, to scanning, processing, and collecting of data necessary for the manufacturer to provide accurate and timely credit to their trading partners should be the goal. “This is even more important when managing a product recall or withdrawals, when time and accuracy of reporting is most important,” Genco’s Rendulic says. “This helps dramatically with the debit/credit reconciliation process, which can pose major challenges to manufacturers and their trading partners.”
While a large component of handling a drug recall is the physical processing and disposition of the product, even more important is tracking and information exchange of the recall data. Extensive government regulations and reporting requirements, along with an increased focus on pedigree, have increased the need for good tracking, visibility and control measurements, experts say. These are all critical components for any reverse logistics process. Many pharma companies are making investments in security measures, data systems and business processes to improve efficiencies in managing recalls. These include, among other things, barcoding or RFID tracking on returns packages and increased use of online resources to manage recall data. “Methods of communications between manufacturers and industry trading partners still vary, according to the level and depth of the recall and manufacturer strategy,” says Perry Fri, SVP, HDMA. The association and its member companies are committed to collaborating with all stakeholders to help ensure continued safe and efficient delivery of prescription medicines and healthcare products nationwide, both in the forward and reverse supply chains.
Over the next five to 10 years, it is anticipated that most, if not all, drugs will be serialized to the individual bottle or package. By reporting back the serial number, a manufacturer has the ability to review the actual purchase order where the drug was originally procured. “We are starting to work with manufacturers on 2D Datamatrix serialization on the reverse logistics side,” Inmar’s Pepperworth says. “Ultimately, once we start submitting the EPCIS product tracking and history, we will have full visibility to chain of custody.” Inmar offers technology tools that provide online access to returns status down to NDC/UPC level, authorization tracking, issuance of RAs online, easy discrepancy reconciliation, shipping information and proof of destructions.
Sortation at Inmar
Leveraging EDI
Reverse logistics planning and execution is also improving through wider adoption of standard electronic communications. Technology advances for product tracking, data management and improved communications between industry trading partners is helping drive reverse logistics to the next level. A case in point is the use of electronic data interchange (EDI) standards—namely EDI 180 and EDI 812—which has reportedly expanded from forward to reverse logistics in recent years.
EDI 180 provides a standardized, multidirectional electronic format for the transaction set used when trading partners issue a request, or notification of, a return, and pharma companies need to respond and issue the return authorization. EDI 812 is a bi-directional transaction set that aims to automate and standardize financial elements of a return, requesting and authorizing debits and credits between trading partners. HDMA and others have been supportive of efforts to develop standard practices for serializing pharma packages with barcodes or other unique identifiers; many studies of the subject point to substantial savings in managing returns, recalls, and credit reconciliation when individual products can be tracked up and down the supply chain.
“More companies are utilizing the EDI Guidelines for 180 Return Merchandise Authorization/Notification & 812 Credit/Debit Adjustments that were published by the HDMA in 2010,” observes Robert Schaltenbrand, director of strategic development at Guaranteed Returns (Holbrook, NY). “Utilization of electronic methods allows for the reduction/elimination of human input error and also speeds up the reconciliation and crediting process.”
The ability to fully automate and standardize electronic communications related to returns can lead to improvements in time efficiency, accuracy, and flexibility. 3PLs report there has been a reduction in manual handling of returns for pharma clients, and it can dramatically reduce the time it takes to reconcile reporting between trading partners. “It also forms the backbone of a powerful data warehouse, allowing manufacturers to spend time evaluating what stories the data tell,” Genco’s Rendulic says. “For those companies that struggle to understand what the data flow means, look for a reverse distribution partner that can not only provide data, but also has tools to better understand it.”
Inmar provides a comprehensive dictionary of data elements available through its EDI 180. This dictionary allows for manufacturer-specific reason codes, class of business codes and customer identification attributes. “With inclusion of such attributes as class of customer and specific return reason codes, we have streamlined the reconciliation process,” Pepperworth says. “Aggregating detailed data in this space can assist in analysis and root cause analysis.”
Communicating with standardized electronic communications, such as EDI 180 and 812, is expected to help streamline the reverse logistics process, and lower the cycle time from notification and authorization to shipment and credit reconciliation of a return. “More than three-fourths of the manufacturers surveyed for the 2011—2012 HDMA Factbook exchanged an EDI 180 with third-party processors (reverse distributors) in 2010, up from 59% the year before,” HDMA’s Fri says. “We see this increased adoption as a positive trend.”
Further reinforcing this point is Inmar’s observation of having seen an uptick of manufacturers engaging in more robust utilization of the 180 interchanges in the past year. “Reverse distributors can provide line item detail for returns, including drivers of creditable vs. non-creditable information,” Pepperworth notes. “One of the key new features we are currently working on is the ability to receive an 812 credit feed in response to our 180 debit memo feed.”
The tool will show the amount claimed on the return vs. the actual credit amount allowed. “We believe this is a major advance in the reliability and value of data,” Pepperworth says. “Today, we use a hierarchy of various price options to estimate the fair value of a returned item. Most of the systems in place are a variation of the warehouse acquisition cost (WAC).”
The 812 removes the need for Inmar to load and manage manufacturer price files.
Enhanced handling of controlled-substance recalls
3PLs say they have security measures in place to control their inventories, and they are focused on compliance with all federal, state and local requirements. “If you have a solid returns process, controlled product is just another link in the chain,” Genco’s Rendulic says. “While controlled substances are more heavily scrutinized, if you have the systems in place, initiating an event with controlled products should be seamless to the manufacturer.” Genco reports having more than 20 years experience in operating state-of-the-art facilities with leading security profiles to protect even the most stringently controlled products.
Recalls of controlled substances are among the most challenging of recalls to manage. As with any other aspect of handling controlled substances, there are major differences in the reporting and handling when compared with noncontrolled products. Both types of recalls, however, require notification, product retrieval and form completion. “The ability to account for every unit is important for controlled and noncontrolled recalls,” Inmar’s Pepperworth says. “The process and QA controls are important across the entire pharmaceutical line of products.”
Given overall concerns about prescription drug abuse, attention is being paid to security practices throughout the supply chain, observers say. These products require additional security measures for inventory management, reporting and record-keeping, in forward and reverse distribution. Controlled substances must be stored in a quarantined area; for example, HDMA reports that its members store Schedule III—V products in cages and Schedule II products in vaults within those cages in their warehouses.
“They do not store or distribute Schedule I products at all,” HDMA’s Fri says. “There are specific regulations governing the return of a controlled substance, for recall or other reason.”
Schedule II drugs require a DEA Form 222 (electronic or paper) be sent from the receiving DEA registrant to the returning entity in advance of the controlled substances being shipped. “The DEA encourages registrants to implement procedures that may reduce or eliminate the potential for diversion,” Guaranteed Returns’ Schaltenbrand says. “This is an area where ‘one-step’ relationships would be beneficial.”
One-touch processing gains traction
In an effort to reduce non-value-added activities, redundant handling and associated costs in reverse logistics, many major 3PL service providers have developed so-called “one-step” or “one-touch” programs, by which they function as the single intermediary between manufacturer and downstream trading partners. In the traditional scenario, upstream manufacturer and the downstream trading partners would each engage their own 3PL partners to handle routine returns. Using the newer approach, a single intermediary handles the entire return from initiation to final product destruction, acting as a partner to the drug maker, pharmacies or other retail partners.
This approach, however, has its pros and cons. “In theory, fewer stops for returned product is more efficient,” Fri says. “In practice, some parties prefer their own dedicated agents as auditors.” HDMA has not collected any data relative to one-touch processing.
Proponents say one-step programs offer many benefits, a number of which are linked to fewer touch points, sustainability, cost improvements and collaboration. For instance, by reducing the number of times product is picked up and handled, it helps decrease redundancies in processing and minimizes opportunities for theft or diversion. Costs are lower from a shipping and process standpoint, 3PLs say, as is the carbon footprint, energy and cardboard use for re-shipping returned products to multiple intermediary partners before the drugs are destroyed.
“Manufacturers have utilized multiple partners for forward distribution of the product for years,” Guaranteed Returns’ Schaltenbrand points out. “Looking to the bottom line, more manufacturers need to embrace the ‘one-step’ model for further cost savings.”
Companies that do not have a single trading partner will often encounter credit requests or deduction attempts long before receiving any information from their reverse services provider. “That can cause unnecessary stress, as well as added expense in return expense forecasting and reverse allocation,” Genco’s Rendulic says. “Choosing a ‘one-touch’ provider gives you the data quickly, allowing you to make confident business decisions rapidly.” It also minimizes the processing cost for the manufacturer by “touching” the product only once.
A one-step process, such as Inmar’s One Touch Advantage, is said to be critical for both cost reduction and environmental sustainability. Inmar processes returned pharmaceutical products for more than 24,000 retail pharmacies and each of the Big Three wholesalers. “As a result, most pharmaceutical manufacturers find that a majority of their product is already processed in Inmar’s facility on behalf of these retail clients,” Pepperworth says. “Rather than re-shipping the product to their (manufacturer’s) DC or third-party processor to be reprocessed, the manufacturer accepts Inmar’s count.” Data collected at the first touch point is used, so reporting can be delivered to government agencies faster, and the compliance rate percentage can be reported as soon as one month earlier.
Stericycle is positioned as a one-stop shop for reverse logistics services and handles everything from medical waste to controlled-substances recalls. The company offers a full suite of services that fulfills the return, retrieval, recall and disposal needs of any retailer, healthcare provider, or manufacturer. “We will deploy our retrieval fleet, process and store your returned and recalled product, dispose of waste, and provide you with all the data and paperwork you need to close out recalls and demonstrate to regulators your compliance with federal standards,” Rozembajgier says.
One-step programs are implemented by some 3PLs in an effort to curb redundant handling and the costs that come along with such a platform. But these types of approaches to return logistics do have disadvantages, observers say. For instance, when the same 3PL handles returned products for the retailer, wholesaler and manufacturer, there are no “checks and balances.”
“When a returned product comes in from a healthcare provider or retail location, there is an urgency to process the product, issue reimbursements and redistribute products to the manufacturer,” Rozembajgier says. “There is often little concern for the integrity of the package, which is critical for traceability.” Return integrity is especially crucial for protecting the brand and limiting financial liability if a returned product leads to a recall situation.
